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Bravo to the Whistleblower

Posted on: March 29th, 2009

LAST June I received a fascinating visitor. The guy said he was a former internal auditor of AIB. He wanted advice. At first I was not overexcited. I sometimes seem to attract every crackpot in Ireland. Some are genuine. Others are headbangers.

Eugene McErlean was no headbanger. He was the real McCoy. At first he was a slight disappointment. He had no complaint against AIB.

A one-time internal auditor of AIB without a beef about his former employer offers little prospect of a sensational story. Eugene had a bigger fish to fry.

He had been refused information about himself held inside no less a fortress than the Financial Regulator, supposedly the defender of the little man.

Today we all know that the Financial Regulator is bosom buddies with the banks. Eugene’s tale suggested that such cosiness has been a feature of our system for a decade.

Instinctively I was more interested in the AIB angle than the watchdog’s failures. I had a whistleblower on my hands.

But the whistleblower had a different agenda. He wanted access to the minutes of a key meeting between himself and Liam O’Reilly, the financial regulator in 2002.

The regulator had refused him access to the minutes. Eugene had just lost a case in front of the Data Protection Commissioner to force a handover of the documents.

I quizzed him about the details. He was reluctant to talk about his previous employer. Eugene was bound by a confidentiality agreement with AIB.

The journalist in me tried to persuade him to share the forbidden fruit.

He refused. He is one of those awkward Northern Irish types — of both communities — who find breaking their word difficult.

But he was carrying enough dynamite about the Financial Regulator to make it worthwhile pursuing his case. I suggested he appear before the Oireachtas committee that deals with financial regulators. I also happen to be a member.

He was in a bind . He wanted to nail the regulator. But he absolutely refused to break his confidentiality agreement with AIB.

Normally, if a guy has a beef with a bank, he needs little persuasion to ride roughshod over niceties like gagging clauses. Not Eugene.

I saw limited value in bringing Eugene before a high-profile Oireachtas committee if he would plead a gagging clause to all sensitive questions. However honourable, he would go down flat as a pancake.

Nevertheless, I introduced him to fellow-committee member Fergus O’Dowd and chairman Michael Moynihan. They were impressed enough to join me in inviting him to give evidence.

But progress was still stymied by the confidentiality clause.

We tossed the options around . Eventually we decided to try a real long shot. Eugene should ask AIB to remove the gag. We held out little hope.

He wrote. They replied.

AIB was generous. They removed the gag. Eugene could speak to the committee on relevant matters.

I was gobsmacked. My inbuilt prejudices against the banks were dented. Well, for a moment.

Eugene revealed to the committee that he had told the regulator about massive overcharging at AIB back in 2001. During two meetings with regulator Liam O’Reilly, in May and October 2002, he insisted he had warned about widespread overcharging and a failure to repay money to customers.

In the second meeting with O’Reilly, Eugene was “told he had withdrawn his earlier allegations”. He vigorously denies this.

It is the minutes of this meeting that the Financial Regulator refuses to release to Mr McErlean. It is difficult to understand why.

The Financial Regulator is withholding minutes of a meeting at which only three people were present: Eugene, Liam O’Reilly and a notetaker. Yet AIB is permitting him to speak freely about the controversy.

Mr McErlean’s appearance at the committee was far from a litany of allegations against the bank. AIB was not in Eugene’s sights. He is not an embittered ex-employee. In his view, AIB has behaved honourably. He simply wants the Financial Regulator to tell the truth , not to bury it, about its knowledge of overcharging.

It is clear from Eugene’s evidence to the committee last Tuesday that the Financial Regulator knew about overcharging in 2001, that it carried out an investig- ation and, according to his evidence, failed to act properly.

And, according to the same evidence, a whistleblower had told the regulator about overcharging galore in the following three years. The whistleblower finally went to RTE in 2004 , frustrated at the lack of action from the Financial Regulator.

What is going on down at the regulator? Why did the watchdog never discover the overcharging which eventually amounted to €65.8m? Why did it take an explosive RTE expose to wake the nation’s champion sleepwalker?

Worse still for the regulator were Mr McErlean’s even more sensational revelations. He himself had informed deputy regulator Paddy Neary (a not unfamiliar name) in 2002 that Goodbody stockbrokers was involved in highly unorthodox share dealings.

Apparently the brokers had routed hundreds of millions of shares through the South Sea island of Vanuatu, and even deep into the darker waters of the Carribean island of Nevis. Nevis is blacklisted by reputable financial bodies.

A possible explanation for why Goodbody put the shares on to such a round-the-world junket was to conceal the identity of the ultimate owners. Vanuatu and Nevis are synonymous with secrecy.

What did the regulator do about these murky offshore activities? Was anyone brought to book? Or did the regulator, true to form, leave the banks and their broking subsidiaries to their ‘principles-based’ regimes?

Well, according to Eugene, Paddy the regulator was “shocked”. Par for the course for poor Paddy.

On Thursday, today’s regulator — finally stung into a response — admitted that Eugene’s claims about Vanuatu and Nevis were accurate. It feebly claimed to have “met with senior personnel in AIB as part of its examination of the matter”.

“Ultimately,” continues its statement, “significant personnel changes took place in Goodbody.” What men of action.

More myopia from the regulator? It never sees anything until it is forced to look.

Elsewhere its responses to the overcharging allegations are world-record winners in verbal gymnastics, the only expertise it has built up over the years.

The regulator has now been asked to answer questions at the committee about its low energy levels in 2001.

Last week AIB responded that all these matters had been dealt with years ago. Which has a ring of truth about it. They were made to pay back nearly €70m for overcharging. As far as Eugene is concerned, he buried the hatchet with AIB long ago.

The same cannot be said of the regulator.

Meanwhile, the regulator in Eugene’s day, Liam O’Reilly, sits on the board of a bank, Irish Life and Permanent. IL&P has not starred as a great respecter of financial regulation. It rather likes a bit of end-of-year window dressing.

Poor Liam does not seem to be any more effective at preventing shenanigans in his new bank than he was when at the Central Bank in 2002. But it is so reassuring that a former regulator can still be fixed up on the board of a bank. Nothing has changed.